Dick’s Sporting Goods shares jump after retailer hikes outlook as it bounces back from theft woes

Shrink who?

Sales and profit at Dick’s Sporting Goods bounced back in the fiscal third quarter, leading the retailer to raise its full-year guidance Tuesday after it shocked investors earlier this year when it slashed its outlook over theft concerns.

Dick’s beat Wall Street’s estimates on the top and bottom lines for the period. In a news release, the company said it’s “excited” for the holiday season after seeing strong back-to-school sales, but is remaining “cautious” given the uncertain consumer backdrop.

Dick’s shares closed about 2% higher on Tuesday.

Here’s how the athletic goods retailer performed during its fiscal third quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:

• Earnings per share: $2.85, adjusted, vs. $2.44 expected
• Revenue: $3.04 billion vs. $2.94 billion expected

The company’s reported net income for the three-month period that ended Oct. 28 was $201 million, or $2.39 per share, compared with $228 million, or $2.45 per share, a year earlier. Excluding one-time items, Dick’s saw earnings per share of $2.85.

Sales rose to $3.04 billion, up about 2.8% from $2.96 billion a year earlier.

For the full year, the company now projects earnings per share to be between $11.45 and $12.05, compared with the $11.27 to $12.39 range that analysts had expected, according to LSEG. Dick’s raised its guidance from a prior range of $11.33 to $12.13. But it still falls below the original outlook the company set earlier this year, when it said it expected earnings of $12.90 to $13.80.

Dick’s also raised its comparable sales outlook slightly and expects them to be up between 0.5% and 2%, compared with a previous range of flat to up 2%. Much of that range would top the 0.7% increase that analysts had expected, according to StreetAccount.

The raised outlook appeared tempered after the strong third-quarter beats. Executives said the company is remaining “cautious” ahead of the holiday season, mirroring sentiment from other retailers that are concerned demand will be tepid.

On a call with analysts, President and CEO Lauren Hobart said the company tried to model “an appropriate level of caution” into the guidance because of the “uncertain macroeconomic environment.”

“We are being conservative on the low end of our guidance,” Hobart said. “We compete with everyone in the world during the fourth quarter, and also the consumer is going through an awful lot, and we’re just trying to be cautious.”

Throughout the call, executives repeatedly said they were optimistic about the holiday, but only for the things “within our control” — such as product assortment, stores and staff. The veiled concern underscored the retailer’s uncertainty over demand and its efforts to hedge its bets and not overpromise.

When Dick’s reported fiscal second-quarter earnings over the summer, its stock plummeted 24% after it blamed theft and aggressive markdowns for a staggering 23% drop in profits. Upticks in “organized retail crime and theft in general” – plus aggressive markdowns to clear out excess inventory – contributed to the profit loss. The company said it would impact its guidance for the year.

During the third quarter, shrink remained a challenge for the company and cut into its gross margin by 0.5 percentage points, finance chief Navdeep Gupta told analysts.

“To be clear, absent the shrink headwind, our merchandise margin would have increased over 70 basis points,” said Gupta. “Combating theft remains a top priority, and we continue to invest in efforts to keep our stores, teammates and athletes safe.”

While earnings guidance at Dick’s is still below the range it originally set for itself, strong sales during the back-to-school months and a core consumer that’s held up better than expected led the company to raise its outlook.

“We are pleased with how our consumer is holding up within the sporting goods industry and then particularly, that they’re choosing Dick’s increasingly to meet their needs,” Hobart said. “We felt in this past quarter particularly pleased with an increase in transaction and ticket and the fact that our consumers are not trading down, that our consumer has held up very, very well.”